Ryanair Holdings plc
Ryanair Holdings plc
Sales: £370.1 million (2000)
Stock Exchanges: London Dublin NASDAQ
Ticker Symbol: RYAAY
NAIC: 481111 Scheduled Passenger Air Transportation
Ryanair Holdings plc, Europe’s largest budget airline, has gone a long way toward making air travel a commodity in the United Kingdom. Operating on the Southwest Airlines formula, Ryanair often causes traffic to double or triple on the routes it enters. It is flown by about seven million passengers a year. The Internet has helped the carrier slash costs on the distribution side. The brash upstart constantly clashes with the Irish airports and advertising authorities and with its state-supported nemesis, Aer Lingus.
Cathal, Declan, and Shane Ryan formed Ryanair with £1 million from their father, Dr. Tony Ryan, chairman and CEO of Guinness Peat Aviation, the aircraft leasing giant. Ryanair began flying a 15-seat Bandeirante on scheduled routes between Ireland and the United Kingdom in June 1985. It entered the Dublin-London market the next spring, competing with British Airways (BA) and Dan Air as well as Aer Lingus. One million passengers a year flew Dublin-London before Ryanair; that number would triple in the next decade.
To save costs, the airline used secondary airports, including four in the West Country. In the first year, Ryanair had two airplanes and five employees apart from flight crew. An official told Aviation Week & Space Technology how the company had borrowed a PC in order to claim its reservations office in Dublin was “computerized.” The company broke even its first year, an impressive feat considering the paper-thin margins of the airline industry.
By 1988, Ryanair had grown to 600 employees and was fielding 40 flights a day. On two key international routes, Dublin-Manchester and Dublin-Glasgow, Aer Lingus matched fares and increased frequencies, forcing Ryanair into a hasty retreat from those markets. In addition, the company had reserved planes for European charter work that never materialized, Aviation Week reported. It learned the hard way about the costs of maintaining too many different kinds of planes—four types in a fleet of eight.
Ryanair lost IR £7.5 million ($11 million) in 1988. CEO Eugene O’Neill resigned over differences with the board of directors about how to proceed during those rough times. P.J. McGoldrick took his place as CEO, although O’Neill remained on the board of directors. At the time, the company was 90 percent owned by the Ryan family and ten percent by employees.
In November 1989, the Ryans injected another IR £20 million into the airline, allowing it to place an order for ten Aerospatiale/Aeritalia ATR-42 turboprop transports for $100 million. At the time, the airline operated six ATR-42s and eight BAC-111s.
Much as Southwest did in the United States, Ryanair’s low fares brought a new class of traveler into the skies. Airline traffic tripled in Ireland between 1986 and 1989. Recognizing the carrier’s contribution to tourism and wanting to maximize the use of Irish airline capacity, the Irish government banned competition between Ryanair and Aer Lingus from November 1989 until September 1992. As a result, Ryanair lost the Dublin-Paris route to Aer Lingus but gained time to reorganize. (France had not allowed Ryanair to offer fares as low as it had wanted anyway.)
New Management in the 1990s
By 1990, Ryanair was posting IR £40 million in revenues but losing IR £7 million a year. It had accumulated losses of nearly £19 since its founding, and the Observer reported that it “came within hours of financial collapse.” P.J. McGoldrick quit his position as CEO early in 1992. His replacement, Conor Hayes, resigned as CEO at the end of 1993 and was to be succeeded by his deputy, Michael O’Leary. Formerly accountant for the company, his financial controls were credited with returning it to profitability. He had also been Tony Ryan’s assistant. According to the Sunday Times, part of his terms were that he and the two other executive directors, Cathal and Declan Ryan, would share half the airline’s future profits.
O’Leary was in his early 30s when he took over. A charismatic figure, he played soccer on the baggage handlers’ team even as he cut wages 25 percent. He spoke of an unrestrained admiration for Southwest Airlines CEO Herb Kelleher and sought to emulate not only his operational strategies but the spirit he inspired in employees. “We must amuse, surprise, and entertain,” he quoted. At Ryanair, like Southwest, managers (including O’Leary himself) helped in other jobs (such as loading baggage and passenger check-in) when needed. Air Transport World reported Ryanair was carrying 3,077 employees per passenger, more even than Southwest, which carried 2,443.
Although McGoldrick had wanted to partner with a U.S. airline with sights on Europe, O’Leary did not want to enter a strategic alliance for fear of losing control over costs. He kept the company focused on point-to-point flights, avoiding complicated code-sharing and Fifth Freedom deals. With profits of just 92p per passenger, Ryanair claimed to be the lowest-cost airline in Europe. Margins were so low that on short flights Ryanair made most of its money from duty-free sales. After a couple of years of breaking even, Ryanair posted a pretax profit of £1.7 on turnover of £75 million for the 1993–94 fiscal year. The next year, profits rose to IR £5 million.
In the mid-1990s, Ryanair had 500 staff and 11 Boeing 737s and was carrying more than two million passengers a year. In contrast, Aer Lingus had three times as many aircraft and ten times the staff, but flew only twice the passengers. Ryanair sold round trip tickets from Dublin to the United Kingdom for as little as £59, and its share of the London-Dublin route eventually exceeded Aer Lingus’s 40 percent. Both Ryanair and British Midland complained of the Irish state carrier’s perceived predatory pricing policies to European Community regulators.
Britain had the most liberalized air market in all Europe, and competition had emerged in the form of EasyJet, which was selling one-way fares between London (Luton) and Glasgow or Edinburgh for £29. EasyJet did not work through travel agents or computer reservation systems. Ryanair, however, relied on travel agents for 70 percent of bookings. Unlike EasyJet, it still issued paper tickets, but did away with assigned seating.
In November 1996, an American investment group lead by David Bonderman bought 20 percent of the carrier. Bonderman, who had been associated with Southwest, also remained a director of Continental Airlines, which he had helped revitalize. In a series of complex transactions, a new company, Ryanair Holdings plc, was formed.
In the 1996–97 fiscal year, the company posted pretax profits of IR £25.6 million on turnover of IR £136.4 million. Ryanair looked to the newly liberalized (deregulated) skies of Europe, aiming for 25 percent a year growth. The continent was a relative stranger to budget air travel. Several factors, however, promised to be particularly costly on short, cheap flights, such as standardized fees for computer reservation systems, hopelessly inefficient air traffic control, and costly landing fees at congested European airports. Ryanair planned to use London’s Stansted Airport rather than Dublin as a base for flights to the continent because of its lower costs. Ryanair cut agents’ com-missions from nine percent to 7.5 percent, following a growing industry trend, while opening its Ryanair Direct telemarketing center, Ireland’s largest.
O’Leary had told the Observer that while other carriers spent years developing markets into profitability, Ryanair “will not enter a route if we cannot break even in three hours and grow the market by at least 100 percent.” In 1997, Ryanair launched routes to Paris (Beauvais) and Brussels (Brussels South) with fares as low as IR £79. It expected to double traffic between Dublin and Paris. It had gained a 37 percent market share on Dublin-London, which in 1997 surpassed Paris-London as Europe’s busiest air corridor.
Ryanair is Europe’s Leading Low Fares Airline: This year we expect to carry over 6 million passengers across 34 routes. We have recently added 7 new European routes to our ever expanding network. We operate a low fares, no frills policy, and have the lowest fares on all of the routes we fly whether from Ireland, UK or continental Europe. On Ireland - UK routes, Ryanair is market leader on every route where it competes with Aer Lingus. Ryanair is confident that Europe’s high-cost and often state-subsidised airlines will be no match for its low cost, no frills formula. In addition to our routes between Ireland and the UK, 15 European cities now enjoy the benefits of truly low cost air travel and with Ryanair set to grow by 25% each year, and a US $2 billion order for 45 new aircraft in place, millions of European air travellers will feel the ‘Ryanair effect’ in the years ahead.
Public in 1997
In the 1997–98 fiscal year, Ryanair flew more than four million people, generating sales of £182.6 million. In May 1997, the company listed shares on the Dublin and Nasdaq stock markets. The Ryan family owned about 40 percent after the offering, worth £100 million; they had pulled £110 million from the company to that point. O’Leary owned 14 percent, and employees received bonuses from £2,500 to £5,000. Through the flotation, Bonderman maneuvered a £1 million investment into a £50 million shareholding, according to the Sunday Times.
The timing seemed great: the airline industry as a whole was recovering, and a healthy economy in the British Isles was encouraging more vacationing. The share price doubled within four months of the offering. Another share placement on the London Stock Exchange raised £50 million. Wary analysts, however, remembered how many budget airlines had failed in the United States during the preceding decade.
Ryanair looked for a hub in continental Europe to find respite from Aer Rianta’s high costs and threw its support behind a proposal (Huntstown Air Park) to build a second airport in Dublin. Ryanair was pitching proposals to build or fund its own terminal there in exchange for reduced landing fees. Dublin Airport had fees nearly three times higher than average. Aer Rianta, which also owned eight Great Southern hotels, was slated for 2002, and the government seemed wary of doing anything to devalue this asset (via breaking its monopoly) before its sale.
BA launched a low-cost offshoot, called simply “Go,” in early 1998. Go had little effect on Ryanair’s market share when it entered the London-Rimini and London-Venice routes in the winter of 1998–99. During 1998, Ryanair carried more passengers than Go, EasyJet, and Debonair combined. Regulatory authorities in Europe took a more aggressive stance regarding the predatory pricing tactics that major airlines in the United States had used to eliminate competition from budget carriers. Ryanair continued to open new routes in Germany, France, and Italy, and in the 1998–99 fiscal year, posted after-tax profits of £45.3 million on operating revenues of £232.9 million; both figures were up substantially.
Two U.K. upstarts, Debonair and AB Airlines, folded in late 1999. Both had tried to incorporate traditional perks into a budget fare system. Both KLM and Lufthansa were considering forming low-fare subsidiaries, although Go had already lost £20 million in 17 months and BA posted its first loss in the dozen years since its privatization. Both BA and Aer Lingus had repositioned themselves toward more lucrative business traffic.
In the winter of 1999, an off-peak season, some carriers offered fares as low as £5 or £6 on Dublin-Liverpool and Dublin-London (although taxes brought the final cost up to more than £30). Still, only two percent of Europeans were flying low-fare airlines, compared with 28 percent in the United States, according to the Irish Times. Probably Ryanair’s most viable competition came from Virgin Express, which began a Shannon-London (Stansted) route in late 1998 and began Shannon-Brussels in December 1999. It also was considering routes from Dublin and Cork.
Taking a shot at its old rival Aer Lingus, Ryanair ran a controversial ad reading, “It’s not just the Bank of Ireland that gets robbed at Dublin Airport,” referring to an event that had in fact just happened. This brought censure from the Advertising Standards Authority.
Ryanair continued to expand its European network, investing $200 million (£124 million) in five new planes and adding 250 jobs in London and Glasgow. It expected to carry seven million passengers, passing Aer Lingus, and hoped to be carrying 12 million passengers a year by 2004. A new hub on the continent was planned by 2002.
Ryanair launched Ryanair.com in January 2000, leapfrogging over Aer Lingus, which had an Internet presence but not online booking. The new web site soon became the busiest one in the country, logging 14 million impressions a month. E-commerce proved to be a low overhead way for the carrier to sell 50,000 tickets a week, more than double the amount sold on Travelocity.com, the next most popular travel site. Ryanair sold $130 million worth of tickets online in the first year. It planned to exploit its potential as a portal to other travel services.
Aer Lingus; British Airways plc; Virgin Express Holdings.
- Ryanair begins flying scheduled routes with a single airplane.
- Brothers Ryan invest £20 million, saving the over-extended airline.
- Michael O’Leary becomes CEO.
- Ryanair lists on the Dublin and NASDAQ exchanges.
- Wildly successful e-commerce site launched.
Beesley, Arthur, “Ryanair Revises Strategy for Dublin Airport Terminal,” Irish Times, October 28, 1999, Bus. Sec., p. 18.
Brown, John Murray, “A Streamlined Approach To Beat the Turbulence,” Financial Times, Companies & Finance Sec., May 10, 1997, p. 18.
Canniffe, Mary, “Ryanair Comes to Market at a Very Opportune Time,” Irish Times, Business & Finance Sec., May 7, 1997, p. 14.
Dalby, Douglas, “Ryanair Chief Executive To Leave at Year’s End,” Irish Times, June 24, 1993, p. 14.
Gresser, Charis, “Flying High for the Price of a Pair of Jeans,” Irish Times, Business & Finance Sec., October 23, 1997, p. 19.
Harrison, Bernice, “Devil Is in the Detail in Ryanair Price Promise,” Irish Times, Business & Finance Sec., January 13, 2000, p. 23.
Harrison, Michael, “P.J. Flies Back into Limelight,” Independent (London), Business and City Page, February 27, 1992, p. 31.
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McHugh, Fiona, “Ryanair To Move Hub to Europe,” Sunday Times, Bus. Sec., September 13, 1998.
Murphy, Colm, “Ryanair Soars Above Rivals on the Internet,” Sunday Times, Bus. Sec., March 19, 2000.
“New Captain at Ryanair as Airline Heads for Europe,” Irish Times, November 23, 1996, Bus. Sec. p. 16.
O’Connor, Anthony, “Leader of the Pack,” Airfinance Journal, December 1997, pp. 28–32.
Ott, James, “Ryanair Seeks To Strengthen Position During Reprieve from Competition,” Aviation Week & Space Technology, November 6, 1989, pp. 58–59.
Reed, Arthur, “Southwest Style in Europe,” Air Transport World, August 1995, p. 63.
Reeves, Scott, “Offerings in the Offing: Smooth Takeoff,” Barron’s, June 2, 1997, p. 47.
“Ryanair Aims To Spread Wings over Europe; New Strategy Still To Be Revealed,” Irish Times, November 15, 1994, Bus. Sec., p. 16.
Skapinker, Michael, “Low-Cost, No-Frills Airlines Tighten Seat Belts,” Financial Times, October 22, 1998, Companies & Finance Sec., p. 23.
——, “There’s No Such Thing as a Free Lunch—US-Style No-Frills Airlines with Low Fares Are Trying Their Luck in Europe,” Financial Times, December 18, 1995, Bus. Travel Sec., p. 12.
“Taking Ryanair to a Higher Plane,” Director, May 1997, p. 18.
Taylor, Cliff, “Airline Confident Low-Cost Formula Can Continue To Deliver Growth,” Irish Times, June 17, 1998, Bus. Sec., p. 16.
Walters, Joanna, “Irish Eyes Are Smiling at Ryanair,” Observer, Bus. Sec., November 27, 1994. p.6.
——, Why Irish Aer’s Not Smiling, Observer, Bus. Sec., August 14, 1994, p.5.
—Frederick C. Ingram